May 17, 2005

Yesterday, the Supreme Court ruled that state regulatory schemes such as those in Michigan and New York, which permit in-state shipments of wine to consumers, but prohibit out-of-state wineries from making such direct shipments, violate the Commerce Clause of the U.S. Constitution.

The States argued that the Twenty-First Amendment’s (the one that repealed the Eighteenth Amendment – “Prohibition”) broad recognition of the States’ police powers in regulating alcoholic beverages permitted Michigan and New York’s differential treatment of in-state and out-of-state wineries with respect to permitting direct shipments to consumers.

The Court ruled that the Michigan and New York direct shipping laws unfairly discriminated against out-of-state businesses, and, as such, violated the Commerce Clause of the Constitution and that the discrimination was not authorized or permitted by the Twenty-First Amendment.

What does this mean for New Jersey?

New Jersey has a statutory and regulatory system similar to those in Michigan and New York (i.e. a three-tiered system requiring separate licenses for producers, wholesalers, and retailers). Also like Michigan and New York, New Jersey prohibits direct shipments of wine to New Jersey consumers from out-of-state wineries, but permits in-state wineries to ship directly to consumers. However, for a New Jersey winery to make direct shipments to consumers in New Jersey the winery must comply with Byzantine and burdensome regulations concerning the “transportation” of alcoholic beverages within the state.

Does this mean that today we in the Garden State can order wine on the internet directly from a California winery?

Hardly.

The New Jersey Attorney General will weigh in on the impact of the Supreme Court’s decision, but ultimately it will be the state legislature that will have to sort it all out.

That means, of course, that it will likely boil down to a battle of the lobbyists. If the lobbyists representing the licensed distributors carry the day, the legislature can protect the distributors by banning the direct shipment of wine to consumers in New Jersey from anywhere, including in-state wineries. That would remove the discrimination against out-of-state wineries, thereby curing any Commerce Clause violation.

As a practical matter, this would not have much effect, if any, on the current operations of in-state wineries, because they appear not to be shipping wine, even to in-state consumers. I was unable to locate any New Jersey winery that currently ships directly to consumers in New Jersey. I suspect that this may be due to the onerous regulations concerning the transportation of alcoholic beverages within the state. It may be that the wineries don’t want to incur the bother and the expense of obtaining the necessary licenses and following the required procedures to ship wine to in-state consumers. Perhaps the regulatory burdens make it unprofitable for common carriers to deliver wine to consumers. I’m not sure which may be the case.

The other option open to legislators who wish to protect the distributors is to apply the existing Draconian transportation rules to out-of state wineries. Again, this would treat in-state and out-of-state wineries equally and would not violate the Commerce Clause. This may well have the same chilling effect on out-of-state wineries that it apparently has now in in-state wineries.

Either option would seem to be well within the State’s police powers under the Twenty-First Amendment to regulate the transportation of alcoholic beverages.

On the other hand, if the lobbyists representing in-state consumers and out-of-state wineries are more convincing, the ban will be lifted and the transportation rules will be relaxed so as to permit out of state wineries to easily ship wine directly to New Jersey consumers, as is the case in many other states.

Sadly, in The Jersey Political Swamp, the matter will probably be decided based upon which group of lobbyists can “buy” more legislators.